FCX – Base Case CDS 137bps, Base Case iCDS 65bps, Negative Case iCDS 99bps, 2027 5.000% Bond YTW of 5.557%, iYTW of 4.667%, Baa3 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

March 3, 2023

  • Cash bond markets are overstating credit risk with a YTW of 5.557% relative to an Intrinsic YTW of 4.667%, while CDS markets are slightly overstating credit risk with a CDS of 137bps relative to an Intrinsic CDS of 65bps. Furthermore, Moody’s is overstating FCX’s fundamental credit risk with its Baa3 credit rating two notches below Valens’ IG4+ (Baa1) credit rating.
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for debt and equity holders. Management’s compensation metrics should drive them to focus on all three-value drivers: sales, margins, and asset utilization, which should lead to Uniform ROA improvement and increased cash flows for servicing debt obligations. Furthermore, most members of management are material owners of FCX equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company.
  • Earnings Call Forensics™ analysis highlights that management is confident they are planning to commence construction of a new tailings site for their Bagdad mine in Arizona that could expand production.

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